Why Do Different Countries Choose a Different Public-Private Mix of Educational Services?
We observe a wide range across countries in the percentage of total enrollments that attend private rather than public schools. This paper seeks to explain 1) the systematically higher proportion of private enrollments (%PVT) in developing as compared with developed countries at the secondary level, and 2) the seemingly random variation across countries within a given level of education and stage of development. I argue that the latter is due to differentiated demand and nonprofit supply, both of which stem from cultural heterogeneity, especially religious heterogeneity. In contrast, the large%PVT at the secondary level in developing countries is hypothesized to stem from limited public spending, which creates an "excess demand" from people who would prefer to use the public schools but are involuntarily excluded and pushed into the private sector. The limited public spending on secondary education, in turn, is modelled as a collective decision which is strongly influenced by the many families who opt for quantity over quality of children, in developing countries. The results of regressions that determine private sector size recursively and simultaneously with public educational spending are consistent with these hypotheses.